Different Types of Costing Method | Report

Added on -2020-02-19

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DIFFERENT
ASPECTS OF
MANAGEMENT
COSTING
STUDENT NAME:
STUDENT ID:
9/12/2017
EXECUTIVE SUMMARY
The title of the report is the different aspects of management costing. As per the title, the report
will detail as to what are the different types of costing method and how the management shall
perform the calculation of costing. Each method has been described and calculated throughout
the report. The second major aim that has been flowed in each and every question is the reporting
of the results to the management along with the reasoning as to why this has happened. With
these two major aims the report has been divided into separate headings and sections.
Contents
EXECUTIVE SUMMARY................................................................................................. 2
INTRODUCTION........................................................................................................... 2
PROCESS COSTING..................................................................................................... 5
PHYSICAL FLOW ANALYSIS...................................................................................... 5
EQUIVALENT UNITS OD PRODUCTION.....................................................................6
UNIT COST OF DEPARTMENT................................................................................... 6
COST OF UNITS TRANSFERRED............................................................................... 7
VALUE OF CLOSING WIP INVENTORY.......................................................................7
COST RECONCILIATION............................................................................................ 7
SUSTAINABILITY ACCOUNTING................................................................................... 8
ISSUES TAKEN CARE BY COMPANY..........................................................................8
FINANCIAL ISSUES................................................................................................ 9
ENVIRONMNETAL ISSUES..................................................................................... 9
SOCIAL ISSUES................................................................................................... 10
ECONOMICAL ISSUES......................................................................................... 10
OTHER INFORMATIONBEFORE RESOLVING THE ISSUES........................................10
COST BEHAVIOUR..................................................................................................... 11
SCATTER DIAGRAM................................................................................................ 11
COST BEHAVIOUR USING HIGH LOW METHOD......................................................11
PREDICTION OF COST WITH EQUATION.................................................................12
LEAST SQUARES REGRESSION ANALYSIS..............................................................13
LEAST SQUARES REGRESSION EQUATION.............................................................14
PREDICTION OF COST WITH REGRESSION EQUATION...........................................14
DIFFERENT IN COST FROM DIFFERENT METHODS.................................................15
COST VOLUME PROFIT ANALYSIS.............................................................................. 15
CONTRIBUTION MARGIN AND BREAK EVEN...........................................................15
EFFECT ON OPERATING INCOME........................................................................... 16
ESTIMATION OF PROFITS....................................................................................... 17
MARGIN OF SAFETY............................................................................................... 17
DEGREE OF OPERATING LEVERAGE.......................................................................17
ABSORPTION AND VARIABLE INCOME STATEMENT...................................................18
INVENTORY COST CALCULATION UNDER ABSORPTION COSTING..........................18
ABSORPTION INCOME STATEMENT........................................................................18
INVENTORY COST CALCULATION UNDER VARIABLE COSTING...............................19
VARIABLE COSTING INCOME STATEMENT..............................................................20
CALCULATION OF OPERATING INCOME..................................................................20
ACTIVITY BASED COSTING........................................................................................ 22
CALCULATION OF BUDGETED PRICE......................................................................22
CALCULATION OF NEW PRODUCT COST................................................................22
CALCULATION OF NEW BUDGETED PRICE.............................................................23
MEMO TO CEO....................................................................................................... 24
STRATEGIC OPTIONS............................................................................................. 25
DISTROTION OF TRADITIONAL PRODUCT COST.....................................................25
RECOMMENDATION AND CONCLUSIONS..................................................................26
REFRENCES.............................................................................................................. 27
INTRODUCTION
Cost management and accounting plays a very important role in the case of success of the
manufacturing companies. It is because each and every method of cost calculation and
management has its own value and informs the management as to how the company should take
care of each element of costing so as to deliver the better results. New concepts of costing like
Process costing, Activity based costing, etc has been discussed along with the decision analysis
techniques like cost volume profit analysis, contribution, etc. Along with the management
costing, concept of sustainability development has been discussed. It informs the management as
to how the company shall perform so as to maintain the balance between the social and
environmental impact of the activities of the company and the profits earned by the company. In
each of the questions, the calculation has been done along with the results detailing how the
company shall proceed with such results.
PROCESS COSTING
PHYSICAL FLOW ANALYSIS
Units to be Account For
Units in beginning WIP Inventory , August 1 600,000
Units started during August 1,200,000
Total Units to be Accounted For 1,800,000
Units Accounted For
Unit Completed and transferred out 1,500,000
Units in ending WIP Inventory 300,000
Total units accounted For 1,800,000
Units in Process as on August, 1 600,000
Add: Units started during August 1,200,000
Total Units taken into account 1,800,000
Less: Unit Completed during August and transfer out 1,500,000
Units in Process as on August, 31 300,000
Physical Units started
during August
= Physical units of Work in Process as on 31st August + Physical Units
transferred and Completed -Physical units of Work in Process as on 1st
August
=300000 units + 1500000 units – 600000 units
=1200000 units
(Horngren, Bhimani, Datar, Foster and Horngren,2002)
EQUIVALENT UNITS OD PRODUCTION
Guerreiro, Cornachione, and Catelli,2006)
Equivalent Units
Physical
Units
Perc
enta
ge
of
Co
mpl
etio
n Cabinets
Compone
nts
Conversi
on Costs
Units in Process as on August, 1 600,000 60%
Add: Units started during August 1,200,000
Total Units taken into account 1,800,000
Less: Unit Completed during August
and transfer out 1,500,000
100
% 1,500,000 1,500,000 1,500,000
Units in Process as on August, 31 300,000 20% 300,000 300,000 60,000
Total Equivalents units of the Assembly Department for
August month 1,800,000 1,800,000 1,560,000
UNIT COST OF DEPARTMENT

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